BlackRock warns of hit to European stocks from energy crisis

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BlackRock has warned that surging energy costs and higher valuations mean European equities are no longer the attractive bet they were just a few months ago. 

Helen Jewell, international chief investment officer for fundamental equities at the $13.9tn-in-assets firm, said the economic hit from high oil and gas prices, as well as a shrinking gap in valuations with US stocks after strong relative performance in recent months, means she has reined in her recent optimism on European equities.

“It is difficult to be quite as bullish on Europe as we had been,” Jewell told the FT, pointing to the region’s exposure to the impact of the global energy price shock on consumer spending in the continent.

“You can’t make these big proclamations that Europe looks cheap now,” she added. “A year ago you had this really interesting valuation gap. The valuation gap has closed, and from an energy perspective, Europe is just a lot more exposed . . . so we are having to be a bit more selective about where we see opportunities.” 

European stocks have underperformed Wall Street for years, but were back in vogue at the start of this year as investors hunted for alternatives to pricey US tech stocks, with the region’s equity funds enjoying record inflows.

But, after a strong end to last year and opening two months of the year, European equities tumbled following the outbreak of the Iran war, with the Stoxx Europe 600 losing almost 12 per cent from its pre-conflict level by its March nadir. Wall Street’s S&P 500, on the other hand, only fell as much as 8 per cent, and has already rebounded to new record highs.

Jewell said her bullishness on Europe at the beginning of the year was in part because she anticipated a “broadening” out of returns from strongly performing sectors such as banks and defence to other parts of the market. But that broadening out has since “retracted” due to the conflict in the Middle East, she said. 

“In Europe, broadening out was about the pockets of the market like quality growth which suffered in 2025,” Jewell said. She highlighted sectors including healthcare, luxury and industrials that had suffered under both US President Donald Trump’s sweeping tariff blitz last year and the strengthening euro, but which were expected to rebound this year as pressure from tariffs eased.

But those sectors are suffering once again, this time due to higher oil prices, soaring borrowing costs and weaker consumer spending, she said.

“We are very nervous about the consumer as a whole,” she said. “[They are] being squeezed on interest rates, inflation. They will start to get thoughtful about what they are spending. 

“Global funds just see more interesting opportunities for companies in the US at the moment”, in part because the US is less exposed to a global energy supply shock, she added. The BlackRock Investment Institute switched to a bigger-than-benchmark position on US stocks this week.

Jewell, who oversees portfolios with a focus on picking individual stocks, said she remains positive on some pockets of the European market including defence, banks and semiconductors.

But she added that there is a risk that investor positioning becomes “crowded” in a few stocks in those sectors, meaning that negative news for one or two sectors could trigger a sharp sell-off for the broader market.

“The market structure is fragile,” she said. “If something happens in one of those sectors, the entire market will hurt quite badly.”

The world’s biggest asset manager is not alone in turning more cautious on Europe since the conflict started. Data from EPFR shows that flows to European equity funds have fallen away sharply since the conflict started. On the other hand, US stocks have already attracted more net flows in April than in any other month so far in 2026.

“The war is just a reminder that Europe is vulnerable, and a price taker on everything,” said Emmanuel Cau, head of European equities strategy at Barclays. The bank this week recommended clients should position for US stocks to outperform Europe.

Nevertheless, there could still be reasons to be optimistic, if the crisis eventually leads to more investment spending by European governments, Cau added.

“If you want to be positive, then maybe long-term, this is going to force more investment in Europe and reinforce its strategic autonomy,” he said.